What is the Average Deal Size?
The Average Deal Size, or ADS, is the mean value of the deals you’ve closed with customers over a given time period. This is a particularly important KPI, as it can reveal a lot about your sales process, ideal customer profile, and the types of deals your company closes.
Average Deal Size is an important KPI for your sales and finance teams to monitor.
Why is Average Deal Size important?
Average Deal Size is important for several reasons. Among them is the fact that you can use ADS to help determine revenue targets and the best way to meet them. Based on the size of deals you’ve made in the past, you can determine the ideal monetary value of deals to pursue in the future.
Knowledge of ADS can also bring you insights into your sales process. Tracking your ADS over time will help you identify sales trends. For example, if you find your ADS has become smaller but your MRR has remained constant, this means your customer base has shifted to smaller firms. Conversely, a rise in ADS and MRR indicates a shift toward larger firms as customers.
For these reasons, ADS is closely linked with your ICP (ideal customer profile). Your ADS can depend on your ICP, but ADS might also inform a decision to modify your ICP.
How to calculate Average Deal Size
How to increase Average Deal Size
As with other sales-related KPIs, the best way to increase your Average Deal Size is to know your ICP. Knowing your customer profile will not only allow you to target potential leads with greater efficiency, but will also make it more likely that your leads will respond positively to other sales tactics, like upselling and cross-selling. Both of these practices will also increase your ADS.
Important! ADS will be affected by the amount of discounts you offer – for example, a rise in ADS but a fall in MRR indicates that you’re offering too many discounts. Discounts can be an incredibly valuable tool, but they can be overused and your revenue will suffer as a result. Therefore, it’s important to have a firm discount policy in place. Offer them only when truly needed!
Finally, increasing your deal length from a monthly to annual basis can also boost the value of your ADS.
Other KPIs similar to Average Deal Size include:
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